With little over a month to go to 5th April, now is the time to focus on maximising tax reliefs and allowances…
Higher rate taxpayers should maximise tax reliefs which are given in full against income such as loss reliefs (including losses incurred on shares in some private companies), pension contributions (up to £200,00, including any unused relief brought forward) and Gift Aid contributions.
Other sensible tax planning opportunities include tax efficient investments making best use of reliefs which would otherwise be lost (annual limits are refreshed into new tax year) There are many schemes, many of which offer generous relief, including Enterprise Investment, Seed EIS investment, Venture Capital Trusts and ISAs. For more information on these, read page 7 of the latest issue of iNsight, our practice magazine.
It’s also worth considering deferring income payments such as bonus payments and dividends from companies where possible, especially for those paying a higher rate of tax this year compared to next year (remembering that from 6 April there will be a reduction in the top rate of tax as those with income of more than £150k will see their top rate reducing from 50% to 45%) This has an added bonus for businesses, as the company can approve bonuses for which it can claim a Corporation Tax relief deduction against current year profits but doesn’t have to pay the PAYE tax and NI contributions on the bonus for up to another 9 months (note the liability is incurred when the bonus is drawn down, so ideally the Directors should defer paying out until the 9th month after approval)
Aside from the above sound advice on bonus deferment, there are a number of other ways to reduce your company’s tax and NI at this time of year.
– Take stock – the lower the value of stock, the less the company’s CT bill will be for the year – so now’s the time to undertake that stock take you’ve been putting off. Remember that if you price an item below cost just to shift it, then you can include it in your stock list at the lower value, not the cost price.
– Go green – currently the tax deduction for greener company cars (i.e. those below 160g/km) is 185 but from the new tax year, that rate will only apply for vehicles with even lower emissions (i.e. those below 130g/km) A purchase order for a vehicle below 160g/km signed before 1st April will still qualify for the higher tax deduction rate, even if you pay for it later)
– Lose the loan – if a Director or employee owes the company more than £5000 at any point during the tax year, this can give rise to a Benefit In Kind tax charge (if the loan interest rate is below 4% including interest free). To reduce both the individual and company NI bill, pay off a significant amount of the loan before the end of the tax year – you can always reborrow again as soon as the new tax year starts. For specifics on how the BIK arises, contact us.